Fashion retail’s returns problem, and why technology might hold the answer
There ain’t no such thing as a free return
Free returns feel very much like a free lunch. Not sure if you are a size M? Order an S and L as well and return the ones that don’t fit. Not sure if that shade of taupe works with that bag? Order the black as well and do an Instagram poll to see what your mates think and return the loser. We feel bad about the delivery trucks zooming to and fro, but justify it saying we’ve got to be able to try things on. Besides, if we are careful with them, the clothes we return will be back on the website in no time, right? The sad truth is that managing returns is a nightmare for retailers and 10% of returns ends of in landfill, with less than 50% being offered for resale.
Why make returns free?
“Free lunch” was coined back in the mid-1800’s in the US when taverns started giving away free lunches with the purchase of a drink. The deal made people visit the tavern at lunchtime. The food was usually high in salt which meant that people would end up buying more drinks. So, the lunch was not “free”. It was paid for by the money spent on drinks. But the idea gained popularity quickly and soon taverns found they were running at a loss and the lunches were reduced to cheaper options like bread and cheese, until the numbers added up. There ain’t so such thing as a free lunch.
Free returns were introduced by online sellers with deep pockets, such as Amazon, in much the same vein. Competing with bricks-and-mortar stores, free online returns levelled the playing field for purely online retailers in the fashion market. But most companies that followed suit did so, not because the numbers added up, but because not doing so would lose them their consumer base. Even though they felt the pain of free returns, it felt like there was no other option. It is hard to make the returns process financially viable. Today, the massive increase in online returns has created a logistical and financial nightmare for retailers.
Introducing free returns increased online sales, but over time it created a culture in which people bought more stuff, with the intention of returning most of it. In 2020, online sales increased by 35% but around the same time, online returns increased by 25%.
Brick and mortar stores have returns rates in single digits, but online return rates are now estimated at 15-30%. A practice called “bracketing” emerged, where people would buy multiple sizes and styles of the same product, in order to try them out at home and return what they didn’t want. Almost 15% of online returns has been attributed to bracketing. The armful of clothes you take into the fitting room at the store, now fills your online shopping basket and makes it way to your home for the same fitting. The difference – what you don’t keep doesn’t go back to being sellable by the end of the day. Instead, it needs to be collected, shipped to sorting centres, examined, sorted, cleaned, ironed, repackaged, and then shipped back to the relevant warehouses to be sellable again. A $50 item, costs retailers, on average, $33 to return.
There ain’t no such thing as a free lunch. Returns are not free. But the cost of free returns is far more than monetary. It is also environmental.
Environment impact of free returns
The fashion industry has a long way to go for sustainability. As a result of cheap, low-quality fast fashion, clothes production doubled between 2000 and 2014 and consumers keep items of clothing only half as long as they did 15 years ago. Around 3 out of 5 garments produced ends up either incinerated or in landfill each year, according to a 2019 McKinsey article, “Refashioning clothing’s environmental impact”.
The reverse supply chain of a returned product results in furthering the carbon footprint of the product. Let’s think of it this way. The carbon footprint of a pair of jeans is approximately 33.4kgCO eq. I buy 4 different versions - lengths 32 and 34 in colours navy and faded blue. I try these on and decide to keep the navy in size 34. I might think my carbon footprint is 33.4kgCOeq, but it is actually more like (33.4 + 3*(33.4+x)*0.5), where x is the additional carbon footprint of the reverse logistics of the return. Say x is a small figure, like 2. I am still racking up a carbon footprint of around 86.5kgCOeq, around 2.5 times the original carbon footprint. And for nothing at all, but the pleasure of trying on different colours and sizes.
Would we buy this way if we really contemplated the environmental consequences? Probably not. Just writing this article is making me hang my head in shame.
The end of free returns
Retailers are fighting back by ending the era of free returns. Retailers like Zara and Boohoo have recently started charging customers for returns. Zara, charges £1.99, which does not go a long way to covering their returns costs, but the charge is expected to curb online shopping trends like bracketing. Now that some retailers have starting charging for returns, many will follow suit, with H&M currently trialing returns charges in Norway.
Will retailers lose their consumer base by charging for returns? Some retailers with bricks and mortar stores, like Zara, can mitigate this by offering free returns in store. But other, fully online retailers, will not have this option available to them.
Consumers tend to expect free returns for mistakes on the part of the retailer, such as damaged goods. But in general, statistics show that a pleasant returns experience is more important to consumers than free returns. 76% of consumers who had an easy returns experience would shop at a retailer again. Clear communication on the returns process, together with easy options such as drop off locations, could prove effective at retaining market share.
Accurate style and fit issues, however, still pose a significant issue for online retailers. As long as there is a disconnect between how a consumer thinks a product will look on them and how the product actually looks on them, online returns will be an issue – be it due to the fit, the colour or any other attribute of that product. Bracketing needs to stop but what can consumers do instead? Surely, the solution cannot be to bin eCommerce and go back to bricks and mortar. No, the solution is to get cleverer with tech.
How to tackle look, feel and fit issues
There is still a big divide between a product’s digital image and its authentic image. In keeping with advertising and marketing messaging, a product’s digital images often look airbrushed and manipulated. Break away from perfect polished static images to those that convey a sense of realism and fluidity. They should show various aspects of the product, including, where possible, consumers’ and social media influencers’ own uploaded photos. These images will go a long way in representing the product as realistically as possible, across all channels. Consumer and influencer reviews can also help create an authentic view of a product.
Digital needs to transform from a 2D untextured space to a 3D space that conveys experiential texture and feel. Creative use of live streaming, virtual showrooms and fashion shows are blurring the boundary between real and virtual.
Supplemented by a solid Product Lifecycle Management solution, like Infor PLM, technological innovations such as Augmented reality (AR) software allow consumers a three dimensional view of a product as well as the ability to “try products on” prior to purchase. A recent study found that AR can significantly improve consumers' shopping experience, especially with regards to style and fit.
Some of today’s 3D software needs nothing more than a user’s mobile phone to generate 3D imagery and fitting services. To battle fit issues, Nike introduced “Nike Fit”, a tech solution that offers foot scanning, AI and machine learning to find the perfect shoe size, and the perfect shoe, for a customer. It uses your mobile phone camera to scan both your feet and it saves it in your Nike profile for future purchases.
Digital channels also lack contact with real people. Yes, Live Chat bots can answer questions, but they are not able to say if that handbag looks good with that dress. The issue can be solved by offering personalized attention, such as virtual meetings with sales associates.
Sell Right First Time
The Right First Time principle usually refers to designing a process or a product with minimal flaws so that time and effort are not wasted in remedying errors. Let’s apply this principle to fashion sales.
Free returns started a buying trend that has had unsavoury outcomes for both retailer profits and the environment. But what are returns? Returns are the remedy to an error, an error made when buying a product. Free returns offer an easy remedy to the error but it does not address the error itself. Instead, we need to shift our mindset towards selling Right First Time. Let’s improve the online sales experience so that consumers make fewer errors when buying products. Buying fewer products that look great is far more enjoyable than buying many more and dealing with the hassle of returns, free or not.
From a consumer’s point of view, it might seem a shame that the era of free returns is coming to an end. But maybe it is not all doom and gloom for online shopping. Perhaps this is the start of the era of buying Right First Time. Imagine that.
Senior Consultant, Fortude